Car Purchase Options: Buy, Finance, Lease, or PCP

Introduction

• Debate on whether to buy or lease a car
  • Buying: Full ownership, potentially cheaper in long run
  • Leasing: Lower monthly payments, drive new cars more frequently
• Video will cover four main ways to purchase a car
  • What they are
  • Costs of each
  • Psychological factors

Part 1: Main Options

1. Buy Outright

   • Pay full price on day one
   • No further payments or interest

2. Finance (Hire Purchase in the UK)

   • Pay a deposit
   • Borrow the remaining amount at a set interest rate for a term (e.g., 3 years)
   • Monthly repayments lead to ownership

3. Lease

   • Like renting
   • Monthly payments to use the car, return it at the end of the contract
   • Payments based on car depreciation + fees

4. PCP (Personal Contract Purchase)

   • Set term, pay deposit
   • Company sets a future value for the car
   • Options at end: keep the car (pay final value), return it, or part-exchange

Financial Implications and Costs

• Analysis done using an average mid-sized family car (e.g., Audi)
• Assumptions:
  • 15% deposit (£4,500)
  • 3-year term

Higher Purchase

• Deposit + ~11% interest rate
• Monthly: £810
• Total cost: just under £34,000
• Estimated resale after 3 years: £16,000
  • Net cost: approx. £17,500

Lease

• Same deposit
• Monthly: £345
• Total cost over 3 years: £17,000
• No guaranteed buy-out option

PCP

• Deposit, car value in 3 years: £15,000
• Monthly: £453
• If returning car: £21,000
• Keeping car (pay final balance): £36,000
• PCP often pushed by dealerships but may not be best
• Comparison: cheaper to lease than return PCP car

Buying Outright

• Cost: £30,000
• Resale: £16,000
  • Net cost: £14,000 (cheapest option)
• Consider opportunity cost of locking £30,000 in the car

Psychological and Other Considerations

• Long-term Ownership (Hire Purchase):

  • Full ownership
  • No monthly stress
  • Maintenance costs can rise over time

• Lease/PCP:

  • Newer car options
  • Lower monthly payments
  • Regular car upgrades
  • Maintenance less of an issue if within warranty
  • Restrictions on car condition, modifications, and mileage

• If buying outright:

  • Consider used cars (2-3 years old) to save on depreciation

Conclusion

• Importance of financial education
• Consider total costs and personal circumstances
• Feedback requested on personal car purchasing experiences

Note:

• Analysis assumes individual purchase, not business-related
• Encourages sharing the information for financial literacy
• Video series focused on personal finance and wealth-building